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Home My WebLink About04. Earthquake Insurance Quote 40 Central Contra Costa Sanitary District March 14, 2017 TO: ADMINISTRATION COMMITTEE VIA: ROGER S. BAILEY, GENERAL MANAGER ANN SASAKI, DEPUTY GENERAL MANAGER PHIL LEIBER, DIRECTOR OF FINANCE AND ADMINISTRATION FROM: SHARI DEUTSCH, RISK MANAGEMENT ADMINISTRATOR SUBJECT: EARTHQUAKE INSURANCE QUOTE INTRODUCTION Several months ago, staff was asked to obtain a quote for earthquake insurance. We have since received a quote for a "Difference in Conditions" (DIC) policy of $340,028 for $10 million in coverage per occurrence and in the aggregate. A DIC policy is a type of property insurance that covers perils not usually covered under standard property insurance policies. The most common perils covered by a DIC policy are flood and earthquake. These policies are underwritten based on the values insured, the type of structures to be covered, the underwriting zone in which the structures are located and the aggregation (closeness) of structures included in the quote. Regarding these criteria, consider the following: • Central San's total insured values exceed $500 million; • Treatment Plant structures are contained in a small area so damages arising from an earthquake will most likely affect more than one structure during a single occurrence; and • Contra Costa County is included in Earthquake Underwriting Zone A2, one that is considered highly seismic with a high concentration of property values. Historically, this combination of factors has made adequate earthquake coverage essentially unaffordable for Central San. For this quote, staff limited coverage to $10 million, limited the schedule of structures to only include those that were likely to suffer damage or have a high consequence of failure, and that were valued in excess of $1 million. A full list of structures included in this quote is included at the end of this memo. Administration Committee March 14, 2017 Page 2 The remainder of this memo discusses the details of this proposal including important definitions, coverage enhancements, coverage limitations and significant exclusions. IMPORTANT DEFINITIONS Deductible —This policy offers a comparatively low deductible of 5 percent, subject to a $50,000 minimum. However, earthquake deductibles work differently than other types of insurance. There is a separate deductible for each unit of insurance. A unit of insurance is defined as: Each separate building or structure The contents or personal property contained in each separate building or structure • Property in the open at each location ■ Loss of income or extra expense and all other covered items This means that Central San's minimum deductible for each damaged.structure and its damaged contents would be $100,000. - Occurrence — For earthquake coverage, a single "occurrence" includes the initial earthquake and any subsequent aftershocks within the next 72 hours. Any damage suffered by aftershocks occurring after the initial 72 hours would be considered a separate occurrence and subject to another set of deductibles. COVERAGE ENHANCEMENTS Replacement Cost — Like Central San's property insurance, this policy values losses based on replacement cost. In this case, replacement cost refers to the cost to replace the damaged structure or portions thereof with like kind and quality. This means that coverage will be limited to the replacement cost of the structure as it was constructed at the time of loss. Any upgrades Central San might consider implementing as part of the repair would be at its own cost. Ordinance or Law—This enhancement covers the cost to upgrade structures damaged by an earthquake to meet current building codes, but only where such upgrades are required by ordinance or law. Since Contra Costa County only permits residential and commercial construction, which in most cases excludes Central San property, our insurance broker suspects that this enhancement would not apply. Staff contacted experts at the California Building Standards Commission to address this concern but they were unable to render an opinion. C:\Users\CGranzella\AppData\Local\Microsoft\Windows\Temporary Internet Files\Content.0utlook\IFG8EC11\Earthquake Insurance Quote-Admin Committee 03-14-2017.docx Administration Committee March 14, 2017 Page 3 Flood Sublimit—This policy includes some coverage for flood damage but it is limited to a $500,000 sublimit. Also, structures selected for coverage in this quote were not evaluated by exposure to flood risk. As a result, structures subject to the greatest flood risk may not be included on the schedule. Furthermore, this policy excludes coverage for the most common causes of flood losses (see Significant Exclusions below). COVERAGE LIMITATIONS As a property policy, this coverage would only apply to damage directly caused b an earthquake. In some cases, consequential losses from an earthquake would be covered under Central San's property insurance (i. e. fire resulting from an earthquake). Damage arising from concurrent causes (i.e. earthquake damage occurring during heavy storms) would only be covered to the extent that the damage was directly caused by the earthquake. This proportion is usually determined by a consulting engineer hired by the insurer. Furthermore, damage to third party property arising from damage to Central San structures after an earthquake (i. e. sewer overflow) would not be covered. SIGNIFICANT EXCLUSIONS Surface Water, Mudflows and Mudslides—As noted earlier, these most common causes of flood losses, are expressly excluded under this policy. Losses Covered by other Policies—As noted at the beginning of this memo, the proposal is for a Difference In Conditions policy, meaning that it would only cover causes of loss that are NOT covered by other property policies, including Central San's other property insurance and crime policies. Pollution/Contamination --- Central San purchases a liability policy for pollution losses arising out of the collection, transportation and disposal of household hazardous wastes. That policy covers injury or damage to others but does not include clean-up costs for hazardous substances escaping from their containment Vessels (i. e. items collected by the Household Hazardous Waste Facility, fuel and chemical tanks at the Treatment Plant) on its own property. Coverage for this particular risk can be added to Central San's current property insurance. Asbestos — Central San has conducted an asbestos survey of its property. All areas with asbestos and asbestos-containing materials are known to Central San and ultimately will be remediated over time at its own expense. This exclusion ensures that this obligation would not be transferred to the insurer as part of an earthquake loss. CA U s e rs\CG ranzel I a\App Data\Local\M i c ros oft\Wi nd ows\Tem po ra ry Internet Files\Content.0Aook\IFG8EC11\Earthquake Insurance Quote-Admin Committee 03-14-2017.docx Administration Committee March 14, 2017 Page 4 Loc Loc2 Site Description Building Description EQ tone Flood Zone Total Value 1 A TREATMENT PLANT HEADQUARTERS OFFICE BUILDING A2 A 17,102,227 1 B TREATMENT PLANT PLANT OPERATIONS/PUMP/BLOWER BUILDING A2 A 82,681,767 1 C TREATMENT PLANT PRIMARY SEDIMENTATION TANKS-RECTANGULAR A2 A 17,850,778 1 G TREATMENT PLANT CHEMICAL FEED BUILDING/MCC 22 A2 A 6,903,843 1 1 TREATMENT PLANT MAINTENANCE&RELIABILITY CENTER(MRC) A2 A 71388,717 1 K TREATMENT PLANT SUBSTATION 16 A2 A 2,3581451 1 M TREATMENT PLANT HEADWORKS/PUMP STATION/MCCs(2) A2 A 13,7961372 1 O TREATMENT PLANT SUBSTATION 81 A2 A 21222,752 1 U TREATMENT PLANT MATERIALS SERVICES BUILDING A2 A 7,326,774 1 V TREATMENT PLANT SUBSTATION 73 A2 A 41577,438 1 W TREATMENT PLANT STANDBY POWER BUILDING A2 A 31517,629 1 X TREATMENT PLANT BUILDINGS&GROUNDS BUILDING A2 A 11997,921 1 AB TREATMENT PLANT SOLIDS CONDITIONING BUILDING(SCB) A2 A 72,887,681 1 AX TREATMENT PLANT SUBSTATION 34 A2 A 966,020 1 AY TREATMENT PLANT AERATION TANK/UV CHANNEL A2 A 53,031,678 1 BG TREATMENT PLANT SUBSTATION 33 A2 A 111071133 1 BH TREATMENT PLANT SUBSTATION 32 A2 A 375,049 1 BI TREATMENT PLANT U-V BUILDING AND U-V BANKS A2 A 13,306,278 1 BJ TREATMENT PLANT SUBSTATION 17 A2 A 2,323,951 1 BK TREATMENT PLANT EMERGENCY SWITCHGEAR BUILDING A2 A 11719,794 C:\Users\CGranzella\AppData\Local\Microsoft\Windows\Temporary Internet Files\Content.0utlook\IFG8EC1 I\Earthquake Insurance Quote-Admin Committee 03-14-2017.docx Administration Committee March 14, 2017 Page 5 Loc Loc2 Site Description Building Description ECS tone Flood Zone Total Value 1 BM TREATMENT PLANT IMHGFF PLACE WAREHOUSE AZ A 21279,176 1 BR TREATMENT PLANT FILTER PLANT FOREBAY A2 A 151019,880 1 BW TREATMENT PLANT SUBSTATION 82 AZ A 31977,866 1 BX TREATMENT PLANT FILTER PLANT OPERATIONS BLD,FILTERS,PIPE GALLERY A2 A 10,716,656 1 BZ TREATMENT PLANT SUBSTATION 40 AZ A 91509,198 1 CA TREATMENT PLANT FILTER PLANT CLEARWELL A2 A 26,595,070 1 CD TREATMENT PLANT MCC 48 A2 A 859,902 1 CU TREATMENT PLANT EMERGENCY SOLIDS HANDLING BUILDING A2 996,070 1 CY TREATMENT PLANT LABORATORY A2 A 4,156,510 14 A LOWER ORINDA PUMPING STATION LOWER ORINDA PUMPING STATION AZ 11534,881 16 A-G MARTINEZ PUMPING STATION MARTINEZ PUMPING STATION AZ x 5,017,116 17 A-B MORAGA PUMPING STATION MORAGA PUMPING STATION A2 8,7411507 18 A ORINDA CROSSROAD PUMPING STATION ORINDA CROSSROAD PUMPING STATION A2 51152,739 19 A SAN RAMON PUMPING STATION SAN RAMON PUMPING STATION A2 x 91077,460 Force Mains Throughout District A2 25,0001000 TOTAL VALVES 442,076,284 C:\Users\CGranzella\AppData\Local\Microsoft\Windows\Temporary Internet Files\Content.0utlook\IFG8EC11\Earthquake Insurance Quote-Admin Committee 03-14-2017.docx